Applying the Golden Rule to Tough Personal Finance Situations

We’re all familiar with the golden rule. “Do unto others as you would have them do unto you.” “Treat others as you would like to be treated.” It’s a key concept in human morality and a foundation rule in most of the world’s significant religions.

For a lot of people, the golden rule comes at least somewhat naturally in human behavior. We’re pleasant to others most of the time, for example. Without the golden rule, traffic flow simply wouldn’t work at all.

Quite often, personal finance success means following the opposite of common sense. “Buy low, sell high,” for example, means doing the exact opposite of what would feel natural to us.

Yet, underneath that, the golden rule pops up in money matters more often than you think. Here are a few examples of sticky money situations where applying the golden rule can lead to a great solution.

Loaning Money to Friends or Family
A friend or a family member is hitting you up for a loan. You don’t want to loan that person money, but on some level you feel obligated to. What do you do?

You really have to apply the golden rule here. Do you wish to never have friends or family members lend you significant amounts of money? If you do, then you can honestly tell that person that you do not want to mix lending and friendship/family.

Even more importantly, you can tell your friends and family that you don’t ever want a loan to come between you, so you’ll never ask them for a loan if they’ll never ask you for one. Do it pre-emptively on a place like Facebook.

What if you’ve loaned/borrowed money from friends and family in the past? If you’ve changed your mind on the issue, then the experience from that lending must have taught you that it’s often not a good idea to mix money and family/friends. Be open about that. Make it clear that you don’t want to mix the two because mixing them in the past has led to frayed relationships, something you don’t want to repeat.

Getting Ahead at Work
When I worked for an employer, I saw many examples of people grabbing credit for themselves and ignoring the contributions of others. Because of that, I saw a lot of hurt feelings and mistrust and I witnessed a lot of relationships broken. I also saw career promotions happen sometimes because of that omission, but I also saw some serious career setbacks because someone didn’t play fair with credit.

What I never saw, however, is someone being set back for giving abundant credit to those who helped them. If you work in a professional environment for very long, it’s clear that you’re never actually doing the big project yourself. You’re always relying on others for something, even if it’s just the opportunity to work on the project.

Give abundant credit. When in doubt, bring up other names anyway and thank them publicly at every chance. You would want the same done for you, and it rarely is a career setback to publicly show that you’re a team player.

Marriage and Spending Money
I’ve seen countless marriages run into difficulty because one partner has a different idea about personal spending money than the other partner. I’ve seen hidden credit card bills. I’ve seen little white lies. I’ve seen people explode when the truth of their partner’s spending is revealed.

Think about it this way: would you like it if your partner deceived you about how much they were spending? Would you be hurt both by the deception and by the worse financial situation than you expected?

The golden rule points to the answer: be open about your spending. If you’re spending more than your partner likes, talk about it anyway. Look for some sort of balance or compromise that works for both of you. The important thing is to talk about your spending, even if you know your partner won’t necessarily approve of it.

Honestly, like the post about selling to/buying from friends, sending out a pre-emptive message about not loaning or taking loans just seems weird. Not to mention rude. And honestly, if you’re short a dollar or two for dinner, or if your normally-reliable pal lost his wallet while on a night out, are you seriously going to not give/take money? I can understand being leary of giving/taking a larger amount of money, but sending out such a message before any of it happens just seems like you’re asking for trouble.

I’m learning to say ‘No’ now to family who have borrowed in the past, and it has led to having some hard feelings, not that I’ve told them how I feel about it. It’s almost an annual request now. They need money for something big, and know I have more than that amount.I’m practicing for this year’s answer to be an absolute no, I will not lend them money. It’s going to be hard. I know it would never be reciprocated, even if they had it. Thanks for the insight on this issue.

Friends and family ask for “loans” because they can not afford or obtain money from commercial sources. If those in the business of lending don’t think they will get their money back, why would I expect a different result if I lend the money? Same with co-signing a loan. Forgetting your wallet is a different scenario, common sense must prevail.

If you are going to loan friends or family money, then PUT IT IN WRITING. You still might not get your money and might end up ruining your relationship with the borrower, but the borrower can’t go around lying to other friends or family about the loan (which they will do) and ruin other relationships.

Just don’t expect that to be legally enforceable unless you know what you are doing.

The best advice is for you to consider any loan to be a gift and not care if you are paid back. That works well for lunch money or “forgot wallet” matters, but is hard to do for substantial amounts of money.

To be honest, I don’t really understand the hard-line “never lend to or borrow from friends and family”. Sure, if you have friends you don’t trust, I can understand that. I can also understand not wanting to lend to financially-irresponsible family who you feel are just taking advantage.

But, I see a different possibility as well. I was in a position where the ‘right’ choice was to take out a loan in my current country to pay off a student loan in my home country immediately. We decided on a bank loan and when my husband’s friend found out, he said we should have asked him. He had the same amount, sitting doing nothing but earning minimal interest. We could have borrowed it from him and paid him more interest than he got from the bank and much less than we were paying the bank. In the end, we would’ve also avoided a lot of early-payment fees! (We had to – and were able to – pay it off immediately to qualify for a mortgage)

We’re now in a similar position again – we need more money than we have, in a short time. This time I believe we will go to this friend instead of (or as well as) the bank.

(For those thinking “they must be irresponsible to need to always borrow money”: my husband had a surprise career opportunity for which he had to quit his current job. We will be on only my small for a short time so want to keep savings, but he needs a significant amount to buy out his stock options in his former company. At the same time, our wedding was 1 week ago and we’re currently in the process of renovating a house. Sometimes life just happens like that)

I’m with Carl, if the bank won’t lend them money, don’t you dare lend them money and NEVER, NEVER, NEVER cosign for anyone else’s loans. If you lend money it won’t be repaid and they will hate you for asking for what is owed. If you cosign, they will renege on payments and you will be forced to pay off their loan. Someone forgot his wallet at a dinner out or is $5. short is different. Make a mental note of whewther you get back the money or not in these latter cases, and know how to act next time. If a bank won’t lend them money, it’s because the bank knows they won’t pay it back! I am so tired of thrifty, well meaning people being victims and running around after the fact moaning that they are not being repaid money they lent to friends and family. If the bank won’t lend, THERE IS A REASON! It is our government’s policy to fleece the rich to support the non productive and lazy, don’t follow the same path.

Depending upon your own finances, the relationship, the amount and the reason for borrowing money, you can also just give the person part or all of what they were seeking and say it’s a gift, it never has to be paid back, and it’s the only time you’ll give or lend them money so part of the deal is that they never ask again, and that you or they agree to never talk about this money again, to each other or anyone else. If they insist they want to pay you back someday, tell them they can if they want to, but you consider the money a gift and they don’t ever have to think about it again, because you won’t.

In my college financial class, I was taught, what I think was, a good rule of thumb for dealing with loans to family or friends. When asked for a loan from family or friends, give it as a financial gift with the assumption that you will never get that money back. Cash gifts endear a person to you (most times) where loans can cause tension between you and/or the loanee.

Mark Gavagan does have the Utopian solution. If you can do that, then that is what you should do. But if you can do that, you probably aren’t reading personal finance blogs.

A lot of people might be able to just give money to help out in a crisis or invest in a child. But very few can just give money for a get-rich investment and not have feelings about whether it is paid back.

Just be sure your feelings are settled before you undertake the loan as a gift.

I gave money to a family member for a medical emergency. I don’t regret it. What I do regret is that i took the $ out of my retirement savings & wrote the check to the family member. I had to pay income tax on the withdrawal.

If I had written the check directly to the medical facility, I understand, I could have taken the medical deduction & saved several thousand dollars of tax.

Books worth budgeting for

My new book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams, is available in bookstores now. Check out some of the life-changing experiences the book has given readers!

Check out my book, 365 Ways to Live Cheap, available in bookstores everywhere! It's filled with 365 great tactics you can apply to your personal finances, from frugal tips to great ideas for managing your money.